Friday, May 16, 2003

FTC news: the Institute of Store Planners

Today I filed public comments in the FTC's latest settlement, this time against that well-known cartel (*cough*), the Institute of Store Planners. I began my comments by outlining the facts of the case:

On Thursday, April 17, 2003, the Federal Trade Commission (FTC) announced a proposed consent order (proposed order) with the Institute of Store Planners (ISP), a New York-based association composed of approximately 860 members. ISP’s members include various professionals who design and construct retail store interiors. ISP maintains a voluntary ethics code which is the subject of the FTC’s complaint and proposed order.

The complaint alleges three provisions of the ISP ethics code violate Section 5 of the FTC Act, which generally prohibit “unfair methods of competition.” The challenged provisions, according to the complaint, are as follows:

  1. “a member shall not render professional services without compensation.”

  2. “a member shall not knowingly compete with another member on the basis of professional charges, or use donations as a device for obtaining professional advantage.”

  3. “a member shall not offer his services in a competition except as provided by such competition codes as the Institute may establish.”

The FTC claims these statements, taken alone and without context, injured the legal rights of consumers by “discouraging and restricting price competition,” thus depriving consumers of “the benefit of free and open competition among store planners.”

The proposed order addresses the FTC’s concerns by forcing ISP to amend its ethics code and other governing documents to reflect FTC viewpoints. Specifically, the order prohibits ISP from “[r]egulating, restricting, impeding, declaring unethical or unprofessional, interfering with or advising against price competition by its members, including, but not limited to, the provision of free or discounted services or restricting members from offering their services in a competition unless they conform to rules or regulations established by ISP.”

My first objection dealt with the FTC's failure to establish any consumer injury:

The FTC alleges the mere existence of certain provisions of ISP’s ethics code constitutes a legal harm to consumers. The Commission’s complaint states ISP engaged in “unfair competition” under the FTC Act by “discouraging and restricting price competition among store planners,” and by denying consumers “the benefit of free and open competition among store planners.” Both of these statements are false. ISP never restricted legitimate competition among its members, and consumers suffered no demonstrable injury.

Since the FTC refuses to provide any context for ISP’s ethics code (or even a complete copy of the code itself), the public is left with little useful information to assess the Commission’s claims of anticompetitive behavior. Nevertheless, CVT’s independent investigation into ISP’s affairs turned up some useful information. CVT has determined that ISP’s ethics code was never intended, or applied, as an agreement to restrict competition in any manner. Rather, ISP adopted its current ethics code in the 1960’s as a means to advise members on how to avoid potentially illegal activities. The code is purely advisory in nature, and has never been enforced with respect to the provisions now challenged by the FTC. Any suggestion by the Commission to the contrary is simply untrue.

But even if the FTC had established some consumer injury—which in antitrust-speak means that prices went up—the punishment imposed on ISP in this case could not overcome an inconvenient constitutional barrier:

In case the FTC needs reminding, the First Amendment forbids the federal government from “abridging the freedom of speech, or of the press; or the right of the people to peaceably to assemble.” The amendment applies to all agencies and instruments of the government, including the FTC, and no affirmative grant of power under the Constitution can be interpreted so as to override, restrict, or impede the First Amendment’s protections. This includes Congress’s power to regulate interstate commerce under Article I, Section 8, which power Congress created the FTC under. Thus, the FTC cannot suspend the First Amendment simply be alleging ISP engaged in “unfair competition” or acted to injure consumers. The antitrust laws are not a license to censor private acts of speech.

Yet censorship is the explicit function of the proposed consent order. ISP is forbidden from so much as “declaring unethical or unprofessional” certain acts the FTC considers sacrosanct. The effect of this is to criminalize the opinions of those who disagree with the FTC, since the Commission is essentially restricting the fundamental liberty rights of ISP and its members. Such acts go far beyond the government’s constitutional power, and they even exceed the intent and scope of the FTC Act. ISP’s members did not commit fraud or engage in false advertising, actions which might justly incur the FTC’s wrath. Instead, ISP is being targeted for forming an opinion on ethical matters, and having the nerve to actually say it out loud. In this sense, the FTC is not just assaulting First Amendment liberties, but the basic ability of individuals to think and act upon their mind’s judgment. Such vicious assaults may have had a place in Saddam Hussein’s Iraq or the Torquemada’s Inquisition, but not in 21st Century America.

Next, I discussed other recent cases where the FTC forcibly rewrote the ethics codes of private association. Obviously there's a pattern at work here, and it's not "protecting consumers" from these codes. The FTC's actual agenda was something far more pedestrian—protecting their own budget:

In the FTC’s recent annual review, the Commission tried to spin their attack on private ethics codes as a noble cause:

The FTC pursued significant investigations involving the rules of conduct for various professional associations. Agreements among professionals that limit competition among themselves, often under the guise of professional association by-laws or codes of conduct, harm consumers much like “smoke-filled room” conspiracies.

This paragraph is utter nonsense. All three of the recent professional association cases involved ethics codes that were publicly known for years, if not decades. The FTC never presented any evidence which shows these organizations did anything behind closed doors in an underhanded manner. If anything, it is the FTC which operates as a “smoke-filled room” conspiracy by routinely coercing defendants into signing consent orders, then presenting the public with an inaccurate view of the persecuted groups. Beyond that, the FTC takes every precaution to avoid having to explain their actions. For example, the FTC has never responded to CVT’s comments opposing the NAA and AICHAW settlements. Nor has the Commission, in this case or the two previous ones, provided even basic evidence to establish any consumer was harmed by the respondents’ allegedly illegal conduct.

It seems that this case, and the other “smoke-filled room” cases, is nothing more than a smoke-screen for the FTC’s real agenda, which is protecting the agency’s budget from congressional scrutiny. According to the FTC’s own “Performance Review,” the Commission has a quota of “45 to 70 nonmerger investigations” per year. This means the FTC is tying their own success rate to the number of businesses successfully prosecuted for antitrust violations. Meeting this quota allows the FTC to justify current funding levels to congressional appropriators, and allows the Commission to claim a substantial record of accomplishment to the public at-large.

But as demonstrated in this case, the FTC’s “accomplishment” reflects little more than the Commission’s ability to coerce respondents into signing a consent order. As the FTC itself admits: “A law enforcement agency that prevails in every litigated matter may do so because it pursue only the cases that are easiest to win.” Here, the FTC pursued a small professional society in an industry of limited scope and influence, and effectively bullied said group into renouncing their First Amendment rights. This is not the proper mission of a law enforcement agency, and it certainly is not the actions of a government that is supposed to uphold individual rights as society’s basic organizing principle.

Today was the final day for filing comments, and the FTC will likely issue a final order in the next two weeks. But that won't be the last we hear of this issue; I've already heard that several other professional associations are under investigation by the FTC over provisions in their ethics codes.

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